I retired at 65. I could have retired a lot sooner. I should have. Trading one's remaining time on Earth for more money (than is necessary) is not a good bargain. Particularly when you don't know how much time you have left but you do know that you have enough money. Here is how I went wrong.
OMY. One More Year. It is so common an issue that it has its own acronym. The notion -- the pull -- of deciding to work "one more year" in a job one wants to leave in order to pad one's retirement stash just a little bit more. To make just a little surer that the stash will last, that it will not run out. OMY.
I've got news for you. What is definitely running out, one day at a time, is your time stash. There's lots of things one can do to stretch out a caught-short money stash. But there isn't a damn thing anyone can do to stretch out one's time stash. Each and every day is unrecoverable. Use it or lose it, as they say.
All morosely true, but what about the "enough money" part? Let's look at my case and see.
How Much Is Enough?
First, let's have some facts for context. At 62, I had $130,000 in cash assets... an IRA with a book value of $213,000 and a yearly 8% income yield of $17,000... an available Social Security benefit of $16,500 a year... a mortgaged house with about $125,000 in equity... and basic living expenses of $28,000 a year including income taxes. And I wanted my 40-plus job related hours a week back in my control to use as I saw fit -- without the job stress, deadline pressure and person-to-person tensions that came with my position as a small working group manager.
Did I have enough cash flow to award myself the priceless gift of freedom right there and then? Yes.
Before we even look at the income side of the ledger, let's talk about my living expenses. At 62, I could have easily done what I did at 65: apply the concept of frugality without sacrifice* to reduce my living expenses. By doing that -- and eliminating my mortgage*** -- those expenses went from $24,000 to less than $18,000 a year including income taxes. How I did that is the topic of another post**, but there you have it: I could have achieved a 36% reduction in my living expenses at any time.
I Could Have Pulled The Trigger At 62
So where would that have left me, if I had taken those expense-cutting steps when I was 62? I would have been living in a paid-for house, with $100,000 cash assets, a Social Security pension of $16,500 a year, a passive investment income of $17,000 a year and annual core living costs of $18,000. That means that at 62 I would have had Social Security payments that almost covered my core living expenses, a cash reserve equal to more than 5 years of those expenses, and more than $15,000 in surplus passive income a year to spend on anything else I liked (after paying my income taxes, of course).
So why in hell would I wait 3 more years to retire? Why in hell did I? One word: OMY -- combined with stuck-in-the-box thinking about my living expenses. I am glad I broke out of that box by redefining my residence location and applying frugality without sacrifice to my budget. I just wish I had done it 3 years sooner. Had I done so, I would have seen the true rosiness of my situation.
I would have seen that at 62 I already had total income to cover my living expenses more than 2 times over -- without having to work and without drawing down my investment fund. Plus I would have had a 5-year cash reserve and a paid-for house available for a reverse mortgage if it ever came to that. I would have seen that I was covered.
And I would have had three more years free to do whatever I liked.
*My Financial Independence Key:
**My $18K Annual Baseline Budget:
***Let me clarify that "eliminating my mortgage" step I threw off so cavalierly. It's not that much of a mystery, really. I just sold the house, took my profits from the sale to a less expensive real estate market (in a milder climate, too) and bought back essentially the same house and property for half of my previous home's selling price. And I bought that new house outright, using the real estate profits plus $30,000 from my cash assets.